IMF trims eurozone growth forecast on Greek bailout concerns

The International Monetary Fund trimmed its eurozone growth outlook Tuesday, warning that a modest recovery remains hostage to Greeces future under a third massive debt bailout.

In its latest World Economic Outlook report, the IMF said growth in the 19-nation eurozone would be 1.5 percent this year, as forecast earlier.

But for 2016, the economy would grow 1.6 percent, instead of the 1.7 percent it had predicted earlier this year.

“The moderate euro area recovery is projected to continue in 2015-16, sustained by lower oil prices, monetary easing, and the euro depreciation,” the Washington-based IMF said in the report.

The IMF warned however that “potential growth remains weak”, the result of the lingering effects of the eurozone debt crisis and a long-term fall in productivity.

Fallout from the six months of bitter bailout talks with Greece was “limited”, the IMF added, reflecting the effectiveness of new firewalls to avert any crisis contagion in the single currency area.

The third bailout programme in five years for Athens had diminished risks to the single currency bloc but “should policy and political uncertainty reemerge in Greece… stress in the euro area could also reemerge,” it said.

Recent data has shown the eurozone economy bobbing along with growth of about 0.4 percent a quarter but inflation – a key reflection of consumer demand – remains subdued, flirting with negative territory as customers hold on to their money.

The European Central Bank, which has an inflation target of just under 2.0 percent, has launched a huge, more than one trillion euro stimulus programme to try and get the economy back on track.

But the IMF said price rises this year would run at only 0.2 percent, rising to 1.0 percent in 2016, well short of the ECB inflation target.

The Fund said that powerhouse Germany would continue to drive growth in the eurozone, expanding 1.5 percent this year and 1.6 percent in 2016.

Struggling France which has lagged its eurozone peers for years should do better, with growth reaching 1.5 percent next year, up from 1.2 percent in 2015.

Post-crisis Spain would grow above the eurozone average — a strong 3.1 percent in 2015 and 2.5 percent in 2016.

[AFP]